Bank of England (Appointment of Governor) Bill

Mike Freer Excerpts

Friday 6th July 2012 Commons Chamber

[John McDonnell]

That is an incredibly constructive proposal, and I hope the Minister heard it. There are other ways of approaching this matter and we should be open to considering them. Yesterday, the Government entrusted the hon. Gentleman with a major inquiry—the inquiry Committee will comprise members of the Treasury Committee and Members of the other House. If the Government have the confidence in Treasury Committee members to undertake that inquiry, it should have the confidence in their having a decisive role in the appointment of a new Governor of the Bank of England. I therefore welcome the hon. Gentleman’s constructive comments.

May I thank Kate Emms, the Clerk, and Gordon Nardell QC for their assistance in drafting the Bill and the explanatory notes? I am extremely grateful for their assistance. The Bill amends the Bank of England Act 1998 to give effect exactly to the recommendation of the Treasury Committee from its report of October 2011 that the appointment of the Governor should be subject to the approval of the Treasury Committee.

Between the time of choosing the appointment of the Governor of the Bank of England as the subject of my private Member’s Bill and debating it, the world has changed somewhat. Last week’s revelations about the role of Barclays bank—and, more than likely, others—in the LIBOR scandal have given the Bill a new context, and there is a new significance in the appointment of the Governor of the Bank of England. Mervyn King will retire in the next year, and the new Governor will play a pivotal role in what, it is increasingly clear, will of necessity be a radical reform and reconstruction of our financial system.

[Mike Freer (Finchley and Golders Green) (Con)]

From the debate yesterday, the Opposition seem to hold the view that the Treasury Committee is not qualified to investigate banking and banking reform, yet the hon. Gentleman today argues that the Committee is qualified to appoint the Governor.

[John McDonnell]

I am pleased that consensus was eventually reached yesterday and that the Chair of the Treasury Committee will now be able to perform his role in that inquiry. The Government’s confidence in the Treasury Committee Chair and its members in respect of that inquiry contrasts with their lack of confidence in respect of allowing the Committee a decisive role in the appointment of the Governor.

It is increasingly clear that the new Governor will have significant responsibility, and it is becoming obvious that we need root-and-branch reform of our financial services and our banking system. Therefore, whatever recommendations come out of the various inquiries, and especially the inquiry that was established yesterday, much of the work of implementing reforms will fall on the shoulders of the new Governor.

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[Stephen Hammond]

Let me finish the point. The Treasury Committee might have said, “How on earth can you as an insider bring insight into the rest of the system?”

[Mike Freer]

My hon. Friend makes a valid point about the Governor being likely to come from the world of banking. Given the close integration of all our major UK banks and the Treasury, how could we possibly find an independent banker?

[Stephen Hammond]

In this case, it would be for the judgment of the Treasury Committee or the Government. Someone with some financial experience might well be helpful in the current world.

This is not a filibuster, because this is exactly the point at which I am going to leave the history of the Governors of the Bank of England, merely making the point that the Treasury Committee might have rejected some of the candidates who have been appointed, even though they have been among the most excellent Governors of the Bank of England.

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[Chris Leslie]

We could have a long constitutional discussion, but essentially I do not think that anything is lost by airing more openly and transparently the background and the thinking of candidates for appointment as the Governor of the Bank of England in the Treasury Committee and then giving Parliament a say.

[Mike Freer]

The hon. Gentleman referred to openness and transparency and to my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) as neutered—although I am sure he is not. As a former Minister in the previous Government, the hon. Gentleman will have been privy to discussions on openness and transparency. Can he share with us the views of the previous Government on openness and transparency in the appointment of previous Governors?

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[Mike Freer (Finchley and Golders Green) (Con)]

I, too, thank the hon. Member for Hayes and Harlington (John McDonnell) for introducing the Bill. He has a reputation as a firebrand in Parliament, so I was surprised and pleased at his thoughtful speech. He almost got me to cross the line and support him. However, I was somewhat surprised to realise, as the debate continued, that the Bill is a Trojan horse. It is not about the Governor of the Bank of England; it is about appointments in general and the power of Parliament in making them. The Bill should do what it says on the tin. If it is meant to be a prod for us to debate reforming the role of Parliament in making appointments, it should say so, but it does not. It is specifically about the power of appointment and dismissal of the Governor of the Bank of England.

[Matthew Hancock]

Is my hon. Friend surprised to hear some Members argue that they do not support the Bill as it stands but would vote for it on different grounds?

[Mike Freer]

I never fail to be surprised at the ability of hon. Friends and hon. Members to vote for what they do not really believe in, as we might see next Tuesday. [Laughter.] The Whips do not need to write that down.

Before I read the substance of the Bill, I thought I would look at the history of the Bank of England. I promise not to go too far back, but I glanced to see whether there was a precedent for Parliament’s being involved in the appointment of the Governor. The Bank of England was formed to raise money for the Government of the day, who could not raise the princely sum of £1.2 million themselves because they were not credit worthy, even though they had sought to attract money by offering 8% interest rates—an eerie echo of the problems of the Greek and Spanish Governments 318 years later. It is not the time, while we are dealing with sovereign debt crises, to discuss whether Parliament should appoint the Governor of the Bank of England, and I will talk later about what would happen if we had to appoint someone in the middle of a crisis.

The Bank was originally a private bank paid for by private subscriptions. I read through its book of subscriptions from 1694—in fact, I have a copy of it with me. I was tempted to read it all out. I have the scars on my back from introducing the London Local Authorities Bill. I am pleased to see my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) here, because he taught me that the way to prolong a debate was to read out, in detail, the coat of arms of all the London boroughs, so it was tempting to read out the list of original subscribers.

[Jacob Rees-Mogg]

I am delighted to note that the time spent debating that Bill was not wasted.

[Mike Freer]

I can assure my hon. Friend that I learned a huge amount from the painful experience of taking that Bill through the House.

I wanted to find out whether anything could be learned from seeing who were the original subscribers to the Bank. One of them was the Receiver of Their Majesty’s Customs. I thought it was rather odd that a tax collector—a modern day Treasury Minister—was a founder of the Bank of England. Under the column headed “Quality” are listed merchants, widows, haberdashers, scriveners, grocers and apothecaries. Even clerks were allowed to subscribe to the original Bank of England.

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[Madam Deputy Speaker (Dawn Primarolo)]

Order. That might be the hon. Gentleman’s opinion and the opinion of people outside the House, but the hon. Member for Finchley and Golders Green (Mike Freer) is in order. If he was not, I would prevent him from speaking. I appreciate that that is the view of the hon. Member for Hayes and Harlington (John McDonnell), and that he has now put it on the record, but the hon. Member for Finchley and Golders Green will be in order if he wishes to advance this argument.

[Mike Freer]

Thank you, Madam Deputy Speaker. I shall indeed turn to the substance of the debate, but I find it rather sad that an hon. Member seeking to restore the rights of Parliament should seek to deprive another hon. Member of the right to continue the long-established tradition in the House of speaking at length, if they so choose.

I was talking about the original subscribers, so I—[Interruption.] I cannot hear what the hon. Member for West Ham (Lyn Brown) is chuntering about. If she wishes to intervene, she should please do so. [Interruption.]

[The Lord Commissioner of Her Majesty's Treasury (Michael Fabricant)]

She’s moving!

--- Later in debate ---

[Lyn Brown]

It felt longer.

[Mike Freer]

As did that intervention.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I am sorry to interrupt the hon. Gentleman again, but let me say to the hon. Member for West Ham (Lyn Brown) that she can either sit on the Benches behind the Front Bench or sit on the Front Bench. I am afraid that she cannot go backwards and forwards as and when she wishes to intervene.

[Mike Freer]

With the forbearance of the House, I will come to the substance of the Bill, but I want to set out the historical perspective for a few more minutes, if the House will indulge me.

Looking at the original subscribers, I was surprised to see the clerk of Eton college. Nothing changes: those Eton chaps get everywhere. Sadly, however, I could find no forebears of the Eton alumni who serve in the current Executive, but I did find a Mr du Bois, a Mr Gape and a Mr Wollaston, so I wondered whether there was an historical link to my hon. Friends the Members for Enfield North (Nick de Bois) or for Totnes (Dr Wollaston) or the hon. Member for Ilford South (Mike Gapes). The index of subscribers was clearly a list of butchers, bakers, candlestick makers, tinkers, tailors and soldiers, but sadly I could see no spies—although, suspiciously, there was a rather large number of French names.

Although the Bank was not a modern-day co-op, it was owned by ordinary people until nationalisation in 1946. At the Bank’s inception, the original subscribers—the original owners—could appoint an agent to act on their behalf. That brings me to the present day—I am grateful to the House for indulging me to this point. The Bank is now technically owned by the people and, through the people, this House. Acting for the people, we have appointed the Prime Minister and his Ministers to act as our agents. The appointment of the Governor of the Bank of England by the Executive is therefore entirely in accordance with the tradition of the Bank from its original founding fathers—the original subscribers.

I have listened to the hon. Member for Hayes and Harlington and to the arguments of other Members—specifically, those on the Treasury Committee, whom I admire greatly. When considering whether to speak in this debate, I noted that my hon. Friend the Member for Chichester (Mr Tyrie) had put his name to the Bill, which gave me pause to wonder whether it had some merit. I appreciate the view that the way in which the Governor has been appointed has not changed substantially since the Bank was nationalised in 1946 and that some feel that reform is required. I also appreciate the wider point that the relationship between the Executive and the legislature in this House should be rebalanced. I welcome the current Government’s moves to do so thus far. Others have compared the appointment of the Governor of the Bank of England with appointments to the Office for Budget Responsibility, but there is a huge difference between bodies that can advise and people with the power to intervene. There is a big difference between the Bank of England and the Office for Budget Responsibility.

A consensus appears to be developing that Select Committees are an under-utilised parliamentary tool. However, we have recently seen a national focus—indeed, an international focus—on the Select Committee on Culture, Media and Sport and, this week, on the Treasury Committee, which is so ably chaired by my hon. Friend. Although new to these Benches, I have sensed a shift, both inside and outside the House, in the role of Select Committees. They no longer simply scrutinise expenditure or the performance of Departments; they now have an investigatory role. That is valued, but there is a huge difference between scrutinising and investigating, and getting involved in appointments. I am particularly worried by the parallels with congressional committees in the United States, because of the precedent set by the vitriolic stand-offs and deadlocks between the Executive and Congress over appointments. I vividly remember the appointment—or the non-appointment—of Clarence Thomas. Whatever the merits of that particular case, the whole drawn-out saga and the blood on the political floor were deeply damaging to the institutions involved. I fear that if this Bill passes, we will go down the same path.

I welcome reform, but I have a number of concerns about the Bill. The Treasury has already agreed new powers for the Governor, and I remind the House that the Governor is one of the most important financial figures not just in this country but in global finance. He or she—as it might well be in the future—is of vital importance not just to the UK economy, but to the world economy. Tinkering with our constitution has ramifications not just for us, but across the world.

My concern about constitutional tinkering is that it is like a thread. If we pull that thread, we will not know where it leads. As my hon. Friend the Member for Wimbledon (Stephen Hammond) said, why stop at appointing the Governor of the Bank of England; what about other public bodies? The thin end of the wedge argument carries a lot of weight, as does the argument that we are tinkering with the constitution.

I refer hon. Members to what will happen next Tuesday. If it comes to pass, the House of Lords will be abolished or “reformed”, as it is euphemistically called. We will have a new elected body at the other end of the building. How long will it be before that body starts to—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I have to tell the hon. Gentleman that what he is saying now is not in order. He is speculating about something that has not yet happened. I suggest that he concentrate on this Bill, either on a historical or contemporary basis, and not refer to Bills that we have not yet debated.

[Mike Freer]

I am grateful for your advice, Madam Deputy Speaker.

My worry is that the other place, in whatever form, will seek to flex its muscles and say, “If the Commons has a role in appointment and dismissal, why not us?” There could be a deadlock not only between the Executive and the House of Commons but between the House of Commons and the other place.

The Treasury Committee’s role is vital. I have no doubt that its role in expressing a voice in the appointment of a Governor of the Bank of England is crucial. Let me deal, however, with the issue of deadlock. In reality, if there were a deadlock, we are told that it could come down to an opinion being expressed on the Floor of the House. Given the potential for such an impasse to create instability in the markets, I remain unconvinced that this Bill provides proper safeguards to prevent this from occurring. In reality, a vote on the Floor of the House is likely to be whipped, and the Chancellor of the day would get his candidate. The Chancellor would have his way, but only after a delay and a bruising stand-off between the Committee and the Chancellor. How would the markets react if there were such a delay?

[Jeremy Corbyn]

Does the hon. Gentleman not accept that whoever was appointed would have greater legitimacy because they would have the authority of having been appointed by Members of Parliament and there would be a route of accountability to the appointment?

[Mike Freer]

That is one argument, but the contrary argument is that if the chosen candidate fails to carry the support of a substantial number of Members—there could be a majority of just one—there would be a credibility gap and the candidate would be damaged. What if the Chancellor were forced to withdraw a candidate or if the candidate chose to withdraw and we ended up with a second candidate or a third, eventually getting to the least worst candidate? That is not good governance; it is certainly not good for the credibility of the institution and cannot be good for the policy of the Bank of England.

People say, “Well, if there is a delay, it does not matter too much; it is more important to get the right person for the job.” Members will recall that when the former chairman—if that is the correct term—of the International Monetary Fund, Mr Strauss-Kahn, was forced to resign, the gap between his departure and the appointment of Mrs Lagarde caused a huge sense of drift in the international markets. That should cause the House to think twice about creating a scenario that could cause the same sense of drift here.

I have another objection to the Bill. We have already agreed to a fixed eight-year term for the Governor’s appointment. That is a difficulty in itself, because the eight-year period will not be coterminous with the fixed parliamentary terms, but if we continue to delay an appointment, a huge problem may be caused. Governors could be appointed mid-Parliament, which could lead to a politicisation of the appointment.

[Kwasi Kwarteng]

Does my hon. Friend not agree that the plan for an eight-year fixed term is a much better safeguard for independence, and for the ability of the Governor to do his or her will and act according to his or her abilities, than the Bill’s proposal to make the appointment contingent on the will of the Treasury Committee?

[Mike Freer]

I certainly agree that the fixed-term appointment is a huge step towards independent stability. As I was trying to explain, what concerns me is that if the vacancy arose after a change of Government, the new governing party could seek to ensure that the new Governor was much more in tune with its own political views. I fear that both the appointment and the removal are much more likely to be politicised if the Select Committee gets its way.

[Mark Durkan]

The hon. Gentleman has suggested that the Government might have a partisan agenda in appointing the Governor. Surely the best way of protecting the appointment from the allegation that the Chancellor’s motivation was purely partisan is to give the Select Committee a role, whether the appointment is made at the start of a Parliament or, even more interestingly, at the end.

[Mike Freer]

The hon. Gentleman is absolutely right. I do not think that any appointment is without politics, but I fear that a Select Committee is much more likely to adopt a political method. We have recently seen Select Committee investigations involving minority reports, and the pursuing of party political agendas in the interrogation of witnesses.

[Mark Durkan]

Did the hon. Gentleman vote for a parliamentary inquiry yesterday? Did he support all the arguments that were advanced in its favour? He seems to be contradicting those arguments now.

[Mike Freer]

I did vote for a parliamentary inquiry, and I do not disagree with some of the points that the hon. Gentleman has made. However, I believe that a Select Committee’s role is to investigate. There is a huge difference between investigating issues and appointing executives with Executive powers who can intervene daily in monetary policy, and there is a significant difference between making such appointments and the interviewing of bank chief executives for wrongdoing.

I have not set myself against reforms. I have no doubt that the appointment of Governors and other senior public officials requires greater transparency than we have seen hitherto. What worries me is that, while pre-commencement hearings are a good thing, involving the Select Committee in the right of veto will not help and, indeed, could hinder the appointment of Governors. I believe that the Treasury Committee should have a voice but should not have a veto, and I therefore cannot support the Bill.

Interest Rate Swap Products

Mike Freer Excerpts

Thursday 21st June 2012 Commons Chamber

[Mike Freer (Finchley and Golders Green) (Con)]

I join the chorus of people congratulating my hon. Friend the Member for Aberconwy (Guto Bebb) on securing this debate.

I have to confess that I am a former banker—[Interruption.] At Barclays bank. I am not sure whether becoming a politician was a move up or down; I might try estate agency next. I worked for Barclays bank in both the corporate and personal sectors, where I had responsibility for a regulated sales force, and I still hold my financial planning certificate and certificate in mortgage advice and practice, so I, like my hon. Friend, have a healthy scepticism when customers complain about bank products, because often when things go well it is put down to their good fortune, but when things go badly it is put down to mis-selling.

I had a fairly healthy dose of scepticism when my constituents came to see me to complain about the products under discussion, but I was genuinely shocked and appalled when I found out what had been done to them. I want to raise the case of a widow who had a small buy-to-let property portfolio. She was interested in reducing her mortgage outgoings, or at least protecting herself from increases in interest rates. Technically, she falls outside the scope of the motion, Mr Deputy Speaker, but I hope that you will give me some latitude. HSBC, the bank that I want to name specifically, classified that widow with a small property portfolio as a business customer.

I expected my constituent to have been sold a capped or fixed rate mortgage product; I did not expect a high-risk interest rate swap, which I would normally have seen in the mid-market or large corporate sectors of the bank. I wrote to HSBC asking it please to send me the documentation that proved that it had established the process of knowing the customer and undertaken the required risk assessment that is absolutely necessary to prove that she was a knowledgeable customer or that her background and experience in other products matched the risk profile of the product that it was selling her.

I also asked the bank to show me the documentation, known as a “reason why” letter, showing why the product that it sold my constituent was the most suitable, rather than other products such as a fixed rate mortgage—or a capped mortgage, had one been available. I was absolutely, completely blown away when I received a telephone transcript. The customer was not sold the product in a face-to-face meeting at which the options were explained; she was sold it over the phone.

I want to read out a couple of snippets from the transcript. The bank manager—or the clerk—said:

“It’s actually…a reducing loan so that implies that it will be coming down over time.”

A bank manager should know that there is not an implication that the loan is reducing, but that it actually is reducing. The manager went on to say,

“and that’s at 1.75 as well and it says that’s reducing as well. So have you got a certain time period on interest only…?”

The bank manager clearly had no knowledge of the customer. I turn to a particularly juicy bit; the brains on the Treasury Front Bench might be able to elucidate it, but I certainly could not make head or tail of it. The client had asked about the ability to repay early, and the bank clerk said:

“How it works in real life, if you were locked in at the rate of 5.35 and after five years you’ve managed to clear all your debt but we’ve still got five years left to run, so you pay Carl”—

the relationship director—

“off all the debt which is fine but then we’ve got an agreement with the Treasury at 5.35.”

That is the treasury division of the bank, not Her Majesty’s Treasury. The clerk went on:

“What happens then is we would look at what the five year rate was, the last five years that you’ve got remaining, and if that five year rate was at six per cent, well then your rate of 5.35 would look good if you like so we would pay you something if you were going to unravel the fixed rate deal. But the converse could also be true, that if the five year rate was down at four per cent and your rate was 5.35 you’d have to pay to unravel it effectively. So the thing with a fixed rate you only fix the debt that you…the core debt you really think you’re going to have…if you thought you’d clear it you wouldn’t want to lock yourself in”.

I hope that hon. Members understood that, but even with my somewhat limited banking background, I was completely bemused. Having read that, I saw that there was no evidence at all that the bank had done its due diligence. There was no questioning to see what my constituent’s attitude to risk was and no evidence of the reason that product was the most suitable in the armoury of the bank.

In my opinion, HSBC had simply circumvented all the regulations and requirements to know the customer by treating my constituent as a business customer, although even business customers would expect better than what my widow constituent received at the hands of HSBC. I see no evidence in the paperwork that my constituent’s circumstances matched the product that was sold. I am appalled that a product as complex as an interest rate swap was sold over the phone—let alone to a customer with no knowledge of financial markets at all.

I have no doubt that all HSBC’s public affairs teams will be crawling all over this debate. I therefore call on the bank to put my constituent back where she was before she entered into this arrangement, or at least to put her into a product that is most suitable for her.

The banks are currently brushing off complaints and telling customers to go to court, but few customers have the reserves to do so. How can a widow living in Hampstead Garden Suburb take on the world’s local bank? I support this excellent motion.

Financial Services Bill

Mike Freer Excerpts

Tuesday 22nd May 2012 Commons Chamber

[Mr Hoban]

I would not say that amendment 73 sowed seeds of hope. Rather, it sowed seeds of doubt by suggesting that those powers were not available. Of course they are available. I have written to hon. Members in respect of Arch Cru and also about interest rate swaps recently, setting out the work that the FSA is doing in this regard. It is looking carefully at the sales practices of a number of institutions in respect of interest rate swaps and will take action, as appropriate. I can reassure my hon. Friends and those who take a close interest in these matters on behalf of their constituents and businesses in their constituency that the FSA has the powers that it needs to tackle these issues properly and fully and to get to the bottom of them.

[Mike Freer (Finchley and Golders Green) (Con)]

Sadly, I am none the wiser. I have three constituency cases in front of me on this very issue. Two of them include a letter from the FSA which clearly states that this is a matter for the courts to decide and is not part of its remits under the complaints procedure. Can my hon. Friend clarify why the FSA is telling constituents that it is a matter for the courts, but he says it is a matter for the FSA?

[Mr Hoban]

There are two issues here. There is a route through the courts that any type of consumer, whether retail or a business, can use if they have been mis-sold a product. That is a normal commercial right. What the FSA has identified as a consequence of the number of complaints on the issue that it has received from businesses is that it needed to undertake more work. It started that work in mid-March. It was looking at products that were sold in the run-up to the financial crisis, and as a consequence of its investigations it believed that more work was needed to establish the scale of the problem and to determine what action should be taken.

There is nothing contradictory about the letter that the FSA sent. Thanks to the efforts of a number of hon. Members who raised with the FSA the concerns of businesses in their constituency, it recognised that they were not just isolated examples and that there was a wider issue that needed to be addressed. Its powers under FSMA enable it to address the problem in the right way. That is a welcome step forward by the FSA.

Prevention of Nuclear Proliferation

Mike Freer Excerpts

Tuesday 13th December 2011 Commons Chamber

[Robert Halfon]

I am happy for any nuclear convention to reduce nuclear weapons in the middle east, but the crucial point that the hon. Gentleman misses is that Israel is a democracy and Iran is a dictatorship.

[Mike Freer (Finchley and Golders Green) (Con)]

I agree with my hon. Friend. May I point out that it is not Israel that has threatened to wipe its neighbour off the face of the earth? Is that not the key point?

[Robert Halfon]

My hon. Friend, who is a strong supporter of Israel, is exactly right.

The one difference between Iran and the Soviet Union is that, when the Soviet Union and the west had nuclear weapons, we lived under the doctrine known as MAD, mutually assured destruction, and for MAD to work one had to be sane, but the sad fact is that Iran does not have that level of sanity, given that, as my hon. Friend says, the President often says that he wants to wipe Israel off the map. We know how the regime behaves from its recent treatment and trashing of the UK embassy, from its taking of American hostages and from its many other human rights abuses.

The hon. Member for Islington North (Jeremy Corbyn) mentioned the abuse of trade unionists and the imprisonment of women, an issue that The Times has highlighted so well, so I strongly welcome the fact that the Government have brought in the tough measures before us. This is the first time the UK has used such powers to cut off an entire country’s banking sector from our financial sector, and that is hugely important not just because of the hoped-for effect of stopping the Iranian nuclear regime, but because of the message that it sends to other tyrannical regimes throughout the world—that Britain will not be weak, but be strong and do everything it can to stop the actions of such dictators.

Although I strongly welcome these tough sanctions and praise the Treasury for having the courage to introduce them, I note that we may be too late. Iran is not far off acquiring a nuclear bomb, and we—perhaps not this country itself, but NATO—may need to take further military action to rid the world of that bomb, to put pressure on the country’s evil regime and to bring about a true democracy, with the rule of law, freedom and everything that the Iranian people deserve.

Oral Answers to Questions

Mike Freer Excerpts

Tuesday 6th September 2011 Commons Chamber

[Mr Gauke]

My hon. Friend will be aware that we are not privy to the advice that was given to previous Governments. However, I look forward to reading tomorrow confirmation that the previous Chancellor believed that it was a wise course of action to increase VAT.

[Mike Freer (Finchley and Golders Green) (Con)]

4. What recent estimate he has made of the public sector borrowing requirement.

[The Chief Secretary to the Treasury (Danny Alexander)]

The July public sector finances release issued by the Office for National Statistics estimates that the out-turn for public sector net borrowing in 2010-11 is £142.7 billion, or 9.7% of gross domestic product—£14 billion lower than in 2009-10.

[Mike Freer]

Citibank economist Michael Saunders recently said that

“the major risk to the UK’s fiscal outlook and credit rating would be if the coalition fails to stay the course on fiscal consolidation.”

Does my right hon. Friend agree?

Scotland Bill

Mike Freer Excerpts

Tuesday 21st June 2011 Commons Chamber

[Iain Stewart]

The hon. Gentleman makes a good point. In calculating these figures, however, we should be careful about looking only at per capita spending. Again, I believe that is too crude. It is about the equality of service provision. In a rural area, the cost per head of providing a school place will inevitably be higher because the fixed costs of a building, for example, are divided by a comparatively smaller number of people.

[Mike Freer (Finchley and Golders Green) (Con)]

Does my hon. Friend accept that allocating funds simply on geography, particularly defence spending, is a misdirection? Defence spending must be based on the strategic needs of the armed forces, not on a geographic spread. Does he agree that that line of argument is completely false in the context of defence spending?

[Iain Stewart]

My hon. Friend makes a very good point. We also have to look at the equality of the benefits given by defence spending—the protection that accrues to the whole country. It does not matter so much where the defence equipment originates if we are looking at the overall protection that the armed forces provide.

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[Mr Davidson]

Well, that is a hard one, isn’t it! Yes, clearly the way to improve the Scottish economy is to create jobs, and as far as I am aware not even the Conservatives are against that. The arguments to which the hon. Lady refers were so complex that it seemed at some points that even Hughes and Hallett were disagreeing. [Laughter.]

We did reach conclusions, however. I think everyone agreed that there were risks in devolving corporation tax, and, as we said,

“not least in that this could lead to competition which could result in the ‘cannibalisation’ of the UK’s tax base.”

There was a political difference there, because we went on to say:

“We recognise that this is not necessarily a concern for those who wish to consider the financial position of Scotland in isolation.”

I understand why a nationalist would not be concerned about the cannibalisation of UK taxes if there were a minor gain to Scotland, but for those of us who take a wider perspective across the whole of the UK, that is a valid point to take into account.

It is generally agreed that a reduction in corporation tax in Scotland would result in some drawing in of business from the rest of the UK; I have heard no serious opinion suggesting anything else. If we accept that, we can do no other than recognise that that is not likely to improve relations between the jurisdictions, and as we would hope that in the event of an independent, or further devolved, Scotland there would be an ongoing relationship, beggar-my-neighbour politics on corporation tax is not helpful. The risk of driving that divide between England and Scotland by achieving a marginal gain in corporation tax revenue in the short term is not worth the candle.

[Mike Freer]

I am grateful to the hon. Gentleman for giving way and I pay tribute to his chairmanship of the Scottish Affairs Committee. Does he also recall the evidence we got from the editor and the business editor of The Scotsman? The issue was not the cannibalisation of corporation tax but the fact that the business community did not trust the SNP not to drive business out of Scotland with a high tax policy.

[Mr Davidson]

That is true, but that is a slightly different point. The business community was absolutely clear that it was worried not only about uncertainty but that the SNP might end up having an anti-business or a business-unfriendly regime. For the purposes of this debate, however, I was not going to go down that particular route at the moment. It is fair to say that nobody who was raising arguments in favour of the devolution of corporation tax was suggesting that it should be raised, but there was an assumption that devolution was in order to reduce it. It was noticeable that even with the points that were made in the Committee and subsequently we have not heard an argument about how the initial gap between the moneys that were previously received from the UK Treasury and the reduced amount would be made up. Even if in the longer term corporation tax was going to result in a growth in business taxation, which I doubt, there would undoubtedly be a short-term shortfall, and we have not heard any solution as to how that would be bridged.

I have great reservations about committing, in the current economic difficulties and a time of recession, to a set of policies that give more money to the private sector and rich people and that cut services for ordinary people who depend on those public services. That is the choice we are being asked to make. If we are all in this together, as has been suggested, how reasonable is it at a time when Scotland has economic difficulties and faces cuts in its budget, to suggest that the budget should be cut further to give a gratuitous tax break to business? That has to be further explored.

As I said earlier, I do not think this is the end of the matter—it will run and run. That is why the Government have to make available as quickly as possible as much information as they can. I suspect that the Scottish Government produced their figures some time ago and sent them down and that they have either been misfiled in the Scotland Office or lost in the post. I simply find it impossible to believe that after all the huffing and puffing that was done, those figures have not been calculated and sent down here, and I urge the Minister to search at the very bottom of his filing tray just in case poor staff work has misfiled those important documents. We have to make sure that this issue is resolved as quickly as possible.

The point on which the shadow Scottish Secretary was howled down was a very fair one. The interventions from the nationalists managed to distract her from making the important point that in 1988—it is true that was some time ago—Alex Salmond, who was then an SNP MP, was suspended from the House of Commons for attacking the Tory Government’s reduction in corporation tax, calling the proposals an “obscenity”. He might have been right then, but the policies he is adopting now seem slightly different, whereas, if anything, the economic situation is the same. I remember seeing that particular pantomime and, if I remember correctly, Mr Salmond decided to have his intervention because he believed that at a time of economic difficulty cutting taxes for business and for those who had most, for the wealthiest, was an inappropriate use of resources. Exactly the same economic situation pertains now and I think we need an explanation as to why what was an obscenity then is not an obscenity now. I recognise that times move on, cultures change and people develop, so if it was a youthful indiscretion, all well and good. If he tells us that, we may forgive and we may forget, but I very much doubt it. It would be helpful to the debate if that was clarified.

Finance (No. 3) Bill

Mike Freer Excerpts

Wednesday 4th May 2011 Commons Chamber

[Mr Hanson]

My hon. Friend makes my case for me very powerfully. I am simply saying to the Committee that these are important changes. We have approved the corporation tax cut, but we are still sceptical about whether the capital allowance cut will be a successful policy, rather than simply an addition to the public spending cuts that the Government are making across the board, which will have a knock-on effect on the private sector just as much as on public sector jobs.

[Mike Freer (Finchley and Golders Green) (Con)]

Just a quick question: if the higher corporation tax and the capital allowances were so valuable, why did manufacturing jobs shrink under the previous Government?

[Mr Hanson]

The hon. Gentleman will know that there are many challenges across the board, and manufacturing is always going to be a changing, moving field. In my area of north Wales, for example, manufacturing grew quite dramatically. In my constituency, we make the Airbus aeroplanes, which you will know very well from your constituency in Bristol, Ms Primarolo. That has been a major growth industry, in partnership with Government investment, Government backing for investment and Government loans and grants to help to grow the private sector and create jobs. The people who have those jobs then spend their wages in the local economy, creating further jobs in shops and in other manufacturing areas across the board. It is therefore an ever-changing field.

I have tried to make it clear to the Minister that we support the general direction of travel on cutting corporation tax, because we do not want the UK to be uncompetitive with our neighbours. In our discussion on clause 4, I was simply seeking an assessment of how the Minister will measure the success of the provision, because we will be forgoing a considerable amount of resource and we will need to measure a success that we do not yet know. The proposal on capital allowances goes hand in hand with the proposal on corporation tax. We will be paying for that cut in part with a major slashing of investment allowances by £2.6 billion under these proposals. Again, I am simply asking for an ongoing assessment of the impact of the measure, because it might work and it might not. I fear that cutting the allowances will lead to a lack of investment, a lack of growth and a further reduction in the manufacturing industry that the hon. Member for Finchley and Golders Green (Mike Freer) is seeking to protect and develop. I want to test the Minister on these issues so that he can justify to the Committee why he is making these cuts.

Oral Answers to Questions

Mike Freer Excerpts

Tuesday 22nd March 2011 Commons Chamber

[Mr Osborne]

Yes, it will.

[Mike Freer (Finchley and Golders Green) (Con)]

T2. The Financial Services Authority’s mortgage market review stated:“Our existing regulatory framework has been shown to be ineffective”and that“regulatory reform is needed to reduce the probability and severity of future financial crises”.Does the Minister agree?

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

My hon. Friend is right. The mortgage market needs reform, but it needs stability as well, which is why I welcome the statement by the FSA today. It says that it will not introduce reforms this year and will take into account overall economic stability before it introduces any further changes. It has also made it clear that lenders should not pre-empt any conclusions from its review.

Oral Answers to Questions

Mike Freer Excerpts

Tuesday 21st December 2010 Commons Chamber

[Mike Weatherley (Hove) (Con)]

3. What estimate he made of the effect on public finances of the introduction of a graduate tax.

[Mike Freer (Finchley and Golders Green) (Con)]

6. What estimate he made of the effect on public finances of the introduction of a graduate tax.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

14. What estimate he made of the effect on public finances of the introduction of a graduate tax.

--- Later in debate ---

[Mr Osborne]

I absolutely do agree with that. Interestingly, as I said in my opening reply, anyone who has ever looked at the issue in government, as we did over the summer and as the shadow Chancellor did when he was the Minister responsible for higher education, has concluded that it is unworkable. It destroys the independence of universities, and it is unfair, because some students would pay much more than the cost of their education, others would avoid it altogether by moving abroad, and millions of students on lower incomes than those specified by our proposals would be hit by a tax rise. It is also unaffordable, and as Lord Browne pointed out in the report that the previous Government commissioned, it would take until 2041 for the system to start paying for itself.

[Mike Freer]

Has the Chancellor, in developing our policy on a graduate tax, been able to bear in mind the policies of the Opposition?

[Hon. Members]

No!

Oral Answers to Questions

Mike Freer Excerpts

Tuesday 12th October 2010 Commons Chamber

[Mr Osborne]

The presence of the Liberal Democrats in the coalition means that two parties are working together to sort out a problem that one party created.

[Mike Freer (Finchley and Golders Green) (Con)]

11. What steps his Department is taking to simplify the tax system.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government are committed to simplifying the tax system. To help to achieve that, the Government have established the independent Office of Tax Simplification. Business and tax professionals have also consistently pointed to the way in which tax policy is developed, legislated and implemented as a contributing factor to overall complexity. We published a discussion document alongside the June Budget setting out proposals for a new approach to tax policy making.

[Mike Freer]

Will the Minister advise on the progress of the interim reports for the Office of Tax Simplification, specifically on IR35 and tax reliefs?

[Mr Gauke]

The OTS is looking at two areas. One is reliefs and exemptions, and although the timing of the publication is to be finalised and that is a matter for the OTS, there will be an interim report, I believe in November, on this area. With regard to the reform of small businesses, including IR35, the OTS intends to report in time for the Chancellor to take into account its views in preparation for the Budget.

--- Later in debate ---

[Mr Osborne]

I will make one observation if the hon. Gentleman wants to lay into my background: I went to the same school as the deputy leader of the Labour party.

On child benefit, we have had to take some difficult decisions. It is quite extraordinary that the Labour party finds itself opposing our decision. Yes, it was a tough decision, but it was fair in the context of the decisions that we must take. The fact that Alan Milburn today warned Labour Members not to oppose the measure—[Interruption.] Of course, the sensible part of the Labour party is no longer on the Front Bench. The fact that Alan Milburn, whom Labour appointed as its social mobility tsar, is warning them is something to which Labour Members should pay attention.

[Mike Freer (Finchley and Golders Green) (Con)]

T6. Although my constituents accept the need to tackle Labour’s legacy, many of them have large families and are concerned about the changes in child benefit. Will the Minister consider transitional arrangements to help families to adjust?

[Mr Gauke]

We do have to take tough decisions. The full implementation proposals will be announced next week, but this is one of those occasions when we must make tough decisions, because we must face up to the enormous deficit. The Government are prepared to deal with it.